Showrooming: How to Compete and Win in the New World

Showrooming is the latest in what appears to be a never-ending series of paradigm shifts for retailers. This is the relatively new activity where shoppers visit a brick-and-mortar store, look at a product, and buy it online. Best Buy is possibly the hardest-hit; it’s been slapped with the unfortunate moniker “Amazon Showroom,” which describes just how widespread this phenomenon has become.

Product price is the obvious problem — the price difference between Amazon and a big box store hovers in the range of 10%. Most states don’t charge sales taxes for online sales (yet), but even where taxes are collected there is a significant difference in price paid. Add free shipping into the mix, and the customer shift from buying locally to “just looking” locally seems like a logical response.

Target’s recent decision to discontinue carrying Amazon’s Kindle e-reader is widely believed to have been in response to showrooming. Target is also working with some of its suppliers in an attempt to create “unique” UPCs designed to thwart easy comparison by phone-wielding shoppers.

To be clear, most of the problems brick-and-mortar stores are facing today are self-created. Thirty years of focusing on little other than price, and the accompanying required reductions in labor and inventory, created fertile ground for online stores to take root. That overarching focus on price has also created a consumer with a taste for little else, partly because there’s nothing to compare it with.

The fact is that we've all become accustomed to poor service — or no service — in the pursuit of low price. We’re used to doing our own research, and now we make decisions based on what a majority of strangers tell us via ratings online rather than a salesperson. When visiting a store, it’s to see the product close-up rather than to get advice from the person selling it. For someone who’s done even the minimal pre-shop research, it’s likely that they know more about the product in question than a store employee.

Brick-and-mortar retailers have another significant disadvantage when competing with online sellers: information. Internet merchants know a lot about every customer that’s ever made a purchase on their site, and even quite a bit for those just browsing. While loyalty cards have been around for a quarter-century, it’s only been in the last 10 years or so that the information they gather has been put to good use. Most are just gathering vast quantities of information with no tangible benefit to the retailer or the shopper.

There’s a line from the hit television show “Mad Men” that applies here: “If you don’t like what’s being said, change the conversation.” Simply put, this means it’s up to the retailer to take steps to change things by effectively combating the surge of online sales with a proactive and aggressive approach. Passive tactics aimed at undermining shopper habits by creating more hurdles (like unique UPCs) may work in the short run, but aren’t a long-term solution.

Competing in this new world will require a clear strategy, and the best way to begin creating a strategy is to define the problem honestly and without emotion. It doesn't matter what used to work — let it go. A price-focused approach is what created the current problem, so let that go as well. Determine the strengths of the store, from the shopper perspective. This is the hardest part: leaving all that internal baggage at the door and looking at the company as the shopper sees it in the cold, harsh light of day.

Once that’s done — and regardless of what the outcome of that initial analysis might be — three things will have to change:

1. Find a point of difference. This is what the company brings to market, and is its raison d’être. It might be based on the company’s original charter, or it may be something completely new. But it has to be something big enough to build an identity on. And it can’t be price.

2. Hire knowledgeable employees. Or hire solid performers and train them. Either way, raise the bar and stop competing with the local fast food joint for “talent.” This will require a price increase because good people cost more.

3. Learn about—and focus on—only the best customers. Use tactics like mobile devices, databases and analytics to target shoppers based on behavior and buying history.

These are major changes for any retailer. They will take time, commitment and a clear vision of the goal, not to mention investment. They are also absolutely necessary for any retailer planning to remain viable for the long term.

“Compete,” after all, is a verb.

Jeff Weidauer is VP marketing and strategy for Vestcom International Inc., a Little Rock, Ark.-based provider of integrated shopper marketing solutions. He can be reached at jweidauer@vestcom.com or visit Vestcom.com.